April 19, 2018 / 7:22 PM / a year ago

TREASURIES-Bump in long-dated yields ends two weeks of curve flattening

 (Adds Treasury debt sales, new quote; updates yields, table)
    By Kate Duguid
    NEW YORK, April 19 (Reuters) - Yields on longer-dated
maturities climbed modestly higher on Thursday after two weeks
of rising less than shorter-dated bonds, retracing some of the
yield curve's flattening.
    The previous nine continuous trading days of flattening
follow a trend that began in mid-February. That trade was "well
into oversold territory," suggesting the move is technical and
that there is still room for the curve to steepen, said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.  
    "We're at a period of consolidation as the market
establishes new volume levels in this zone," he said, suggesting
that the curve would resume flattening after the next release of
significant economic data.
    A flattening yield curve suggests the market believes the
Federal Reserve will continue to raise rates even if there is
skepticism about U.S. growth and inflation, which has remained
stubbornly low. Increased supply of government debt is also
expected to tamp down Treasury prices. 
    "The two major reasons for the flattening are the Treasury
and the Fed. The Fed is going to continue on their gradual
interest-rate hiking path," said Justin Lederer, Treasury
analyst at Cantor Fitzgerald in New York. "When you look at
Treasury issuance, they’ve got to fund these trillion-dollar
    The U.S. Republican government's tax bill is expected to add
$1.5 trillion to the federal debt load. In addition, the Fed is
winding down the amount of debt it buys, ending its crisis-era
policy. Together, the tax bill and the Fed's updated balance
sheet added significantly to the supply of U.S. debt being sold
in 2018.   
     The U.S. Treasury Department said on Thursday it increased
the amount of debt it will sell next week. On offer will be $32
billion of two-year fixed-rate debt, the most sold for this
maturity in four years, and $17 billion in two-year
floating-rate notes.
    Not all analysts agreed on the reasons for Thursday's
steepening. The overnight rise in the yield on the benchmark
government note is evidence of "continued signs of positive
economic growth," said Jim Barnes, director of fixed income for
Bryn Mawr Trust in Devon, Pennsylvania. "I don't think you're
going to see a flattening this year."   
    Strong economic fundamentals could be behind Thursday's 3.6
basis point increase in the spread between two- and 10-year
yields and the 1.9 basis point increase in the
five- and 30-year spread.
    Americans boosted their spending in March, unemployment is
low at 4.1 percent and wages inched higher, according to the
Labor Department's payrolls report released earlier this month. 
    The 10-year Treasury yield was up 5 basis points
from its last close, to 2.917 percent. The 30-year Treasury
yield was up 6.3 basis points from its last close,
at 3.109 percent. 

    April 19 Thursday 3:06PM New York / 1906 GMT
 US T BONDS JUN8               143-23/32    -1-7/32   
 10YR TNotes JUN8              119-204/256  -0-88/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.7925       1.8256    0.013
 Six-month bills               1.9625       2.0096    0.008
 Two-year note                 99-166/256   2.4358    0.009
 Three-year note               99-100/256   2.5883    0.016
 Five-year note                98-202/256   2.7635    0.033
 Seven-year note               98-116/256   2.8721    0.043
 10-year note                  98-144/256   2.9191    0.052
 30-year bond                  97-224/256   3.1097    0.064
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        28.50         0.50    
 U.S. 3-year dollar swap        22.00         0.00    
 U.S. 5-year dollar swap        11.50         0.00    
 U.S. 10-year dollar swap        2.25        -0.50    
 U.S. 30-year dollar swap      -14.00        -0.25    

 (Reporting by Kate Duguid; Editing by Dan Grebler)
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